Microsoft suffered one of the largest single-day market capitalization losses in financial history, shedding an estimated $360 billion to $424 billion after its stock plunged 10%–12% following its Q2 earnings report. While earnings themselves were solid, investors reacted sharply to growing concerns about Microsoft’s deep financial and strategic ties to Sam Altman’s OpenAI a partnership some analysts now describe as structurally risky and financially unsustainable.
Circular Financing Raises Red Flags
At the center of the sell-off was the revelation of what analysts call “circular financing.” Microsoft has invested over $13 billion into OpenAI, which then uses much of that funding to purchase Azure cloud credits. Both companies record this as revenue, inflating growth figures. Investors were alarmed when it became clear that nearly 45% of Microsoft’s $625 billion AI backlog comes from OpenAI itself meaning a large share of Microsoft’s projected growth depends on a single, unprofitable partner.
AI Spending vs. Real Returns
Investor anxiety intensified after reports revealed OpenAI lost over $12 billion in a single quarter, burning roughly $15 million per day on compute costs for projects like Sora and advanced model training. At the same time, Microsoft’s own AI infrastructure spending surged to $37.5 billion in one quarter, up 66% year over year. Yet Azure growth slowed slightly to 39%, raising serious doubts about long-term return on investment.
Contractual Restrictions Worry Analysts
Adding to the concern was disclosure of a controversial contract clause reportedly preventing Microsoft from developing its own Artificial General Intelligence (AGI) systems until 2030. Analysts at Bank of America labeled this an “extreme concentration risk,” arguing that Microsoft could be strategically trapped if OpenAI were to falter or if the partnership deteriorated.
The “DeepSeek Shock”
Market fears were compounded by the emergence of China’s DeepSeek, which released a high-performing AI model at a fraction of OpenAI’s training cost. This challenged the assumption that massive capital spending is required to dominate AI, making Microsoft’s hundreds of billions in infrastructure investments look potentially inefficient or even stranded.
Market Reaction Signals Shift in AI Sentiment
While CEO Satya Nadella defended the OpenAI partnership as “strategic foresight,” investors appear to be demanding proof of profitability rather than promises of future dominance. The sudden collapse in Microsoft’s valuation reflects growing fears of an AI bubble, drawing comparisons to the dot-com crash.
Ultimately, Microsoft’s January 28 crash marks a turning point: the era of blind confidence in limitless AI spending may be ending, replaced by a sharper focus on sustainable business fundamentals and real-world returns.
